Money, Guns and Real Estate

Today’s Weekend Markets and Money begins with an ambitious thought experiment: American power is going to dominate the globe for the next 100 years. And at the end of the century it’s going to clash with the rising influence of…Mexico.

That’s the gist of George Friedman’s book The Next 100 Years: A Forecast for the 21st Century. Friedman is a noted geopolitical analyst. The book is actually from 2009, but still makes interesting reading. From this central assumption, he plays with the geopolitical implications and how they might play out.

Friedman wrote the book in the middle of the global financial crisis. It’s a big call to forecast the next one hundred years anyway. To bet big on the US at that time might have seemed crazy — except, he argues, if you understand history. An economic crisis wasn’t anything particularly new. Nothing about the bigger trend — of American military and technological supremacy — had changed. It still hasn’t.

Friedman’s position is that US power stems from its dominance of both the Atlantic and the Pacific. The US Navy controls the sea lanes of world trade. Muscle counts.

It won’t change anytime soon either. Colleague Byron King — the contributing military analyst for the Albert Park Investors Guild — went to Hawaii last month to report on the technology and firepower the US military is commissioning and developing. One of those is ‘a super-powered electromagnetic rail gun, capable of accelerating a projectile down the barrel of a gun up to Mach 7 — more than 5,300 mph — without any explosive propellant…’

Here’s the important part of Byron’s report in the context of Friedman’s book: The rail gun and its ammunition should be light enough to mount on any U.S. Navy warship, even ones currently too small to carry significant conventional weaponry.’

Nothing, and no one, can counter US firepower. The second pillar of American hegemony is having the US dollar as the world’s reserve country. That’s why Russian President Putin said on Thursday he wants to sell Russia’s energy in rubles, not US dollars. If you cut dollars out of trade, you take US power down with it.

We’ll see how the world’s banking cartel reacts to that. It’s also where it gets really interesting. Before the invasion of Iraq, the country had moved to sell its oil in euros, not dollars. You know what happened after that. Then in Libya, Gaddafi began a similar movement for African nations to move away from the US dollar. The Libyan central bank even operated outside the framework of the Bank of International Settlements. Then came the ‘military intervention’ and Gaddafi was killed.

Back to Friedman. Two of his calls in the book have come true in the meantime. The first is a Moscow push to control Ukraine and secure the Russian Western border. That’s put US-Russian relations back onto centre stage according to his timeline.

The second call — a militaristic Japan prepared to project regional power — is still playing out. What’s interesting is Japanese Prime Minister Shinzo Abe moved this year to amend Japan’s pacifist constitution put in place after 1945. This comes after the Japanese government decided to increase military spending in 2013.

The consensus opinion is that Japan is a write-off because of high debts and bad demographics. But the country is still the largest creditor nation in the world. It’s the demographic point that really sticks out. Historically, Japanese society is hostile to immigration.

Friedman’s argument is that Japan will look to coastal China where Japanese capital could meet cheap Chinese labour. The profits sent home could help fund the aging population. Not only that, Friedman’s position is that Japan will build up its military to secure its access to raw materials. It may even attempt to control parts of Pacific Russia. He’s on track for now…watch this space.

But for our purposes, perhaps it’s Friedman’s position that China is heading for an economic and political crisis that’s most relevant. Of course, I’ve read sceptical stories on China for years. But there’s no doubt China’s internal stability is always a bit of an open question.

That’s one reason the Chinese send their money all over the world. Cycles, Trends and Forecastseditor Phil Anderson pointed out this week that $10 billion dollars is leaving China every month.

The New York Post reports, ‘So much money is fleeing China…that it is distorting the global economy, particularly in the art market and with real estate booms.’ According to Forbes, Australia is the most popular real estate market for Chinese buyers after the United States.

Phil wrote to subscribers yesterday, ‘To me it illustrates the scope and breadth of wealth generation around the world, most of which ultimately usually ends up washed out somehow through real estate. Or through a casino first, then into real estate. This cycle has only just begun. The sheer scale of what is mentioned here, even if it is only half true, is gargantuan.’

If you’d like to know how that will affect the Australian real estate cycle — and your investments — over the next decade, start here.


Callum Newman,
Editor, Weekend Markets and Money

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Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with. Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect.

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